This post was published in 2 parts by Kluwer Blog on August 20th 2018
This note will first reflect back thirty three years on the genesis of arbitration and competition matters and the Mitsubishi case, and then, in Part 2 below, I will touch on some practical issues that frequently will arise in a competition case today and how Mitsubishi is still influencing with vigor. As the reader will see, that organic decision continues to be of great significance in the handling of complex arbitrations, especially those dealing with antitrust or competition issues.
In Mitsubishi Motors v Soler, 473 US 614 (1985), the US led the worldwide migration to the arbitrability of competition disputes. Up till that time, most, in not all, jurisdictions around the globe considered these matters strictly for the courts. The Supreme Court in Mitsubishi began by noting the “healthy regard for the federal policy favoring arbitration” as well as, in respect to international matters, the growth of American business and trade will not be encouraged if “we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.” 473 US at 629. In holding antitrust claims arbitrable (claims “encompassed within a valid arbitration clause in an agreement embodying an international commercial transaction”), the Court (per Justice Blackmun) observed with remarkable prescience in 1985 “[t]he controversies that international arbitral institutions are called upon to resolve have increased in diversity as well as in complexity. Yet the potential of these tribunals for efficient disposition of legal disagreements arising from commercial relations has not yet been tested.” 473 US at 638. Thus, the Supreme Court was willing to embrace this “experiment” and courts will have to “shake off” any hostilities to arbitration and essentially get with international notions of progress in trade and commerce.
In the commercial area, although there is always room to improve, we have certainly seen since 1985 a robust development for increased efficient disposition of these claims in arbitration, including antitrust/competition claims as will be discussed. Also, at the time of Mitsubishi, antitrust/competition advocates were concerned about ceding private enforcement authority to .arbitrators, while the arbitration bar, by virtue of language in the opinion allowing courts to have a “second look,” was unsure just what the case would mean to the very cornerstone of arbitration, party autonomy in deciding how they want their disputes resolved. More on that below as well.
Since that seminal case, cases around the world have followed suit if not extended Mitsubishi, most notably Eco Swiss China Time v Benetton Int’l1) in the EU. Furthermore, Mitsubishi has been unremarkably construed to cover US domestic as well as international disputes.2) Now, in looking back more than thirty years later, Mitsubishi, in addition to its landmark ruling on arbitrability, strikes me on fresh reread as making certain corollary points which are of significant importance to the arbitration and competition law practitioner today.
The first observation on reflection is the discussion regarding the concern that antitrust cases are too complex to be left in the hands of arbitrators. The cases “require sophisticated legal and economic analysis, and thus are alleged to be ‘ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity.’” 473 US at 632. The Court’s dismissal of this concern was powerful. Precisely because these cases can be so complex is reason to favor arbitrability as “it is often a judgment that streamlined proceedings and expeditious results will best serve their needs that causes parties to agree to arbitrate their disputes; it is typically a desire to keep the effort and expense required to resolve a dispute within manageable bounds that prompts them mutually to forgo access to judicial remedies.” 473 US at 633. Thus, we see today many arbitral institutions have adapted to complex cases in their rules and the push for expedition in spite of complexity, as well as arbitrator selection of individuals who are comfortable if not expert in the competition arena for example. Antitrust cases many times are economic theory driven and most institutional rules as well as soft law rules such as the IBA Rules on Taking of Evidence in International Arbitration (“IBA Rules”) allow for creative and liberal use of expert testimony in the proceeding. This was recognized by the Court as well as the reference to a kind of “anyway” the cases in arbitration will most likely be vertical issues (subject to an arbitration agreement) and not horizontal price fixing cartel cases, the ”monstrous proceedings that have given antitrust litigation an image of intractability.” 473 US at 633.3) It was arbitration’s “adaptability” and “access to expertise” that swayed the Court on the over-complexity argument.
The second point that strikes me on a Mitsubishi reread are the concerns raised by the Soler party against arbitration that the private treble damage procedure is too important to the business fabric to be thus relegated and, furthermore, the arbitration process cannot be counted on enforce competition policy with arbitrators, many times foreign and many times chosen from the business community.” Just as just as ‘issues of war and peace are too important to be vested in the generals, . . . decisions as to antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community – particularly those from a foreign community that has had no experience with or exposure to our law and values.’” 473 US at 632. The Court had no problem dismissing these concerns, noting what has been true today, through the party and institutional appointment process, the tribunals have for the most part remained impartial and competent, and have had no special obstacles interpreting foreign law if needed, just as a judicial body would do under Fed R Civ P 44.1.
As to the importance of the private treble damage remedy,4) the Court as well found no impediment in allowing a litigant to vindicate its full competition grievance through the arbitration process. The private right of action statute.”5) will remain just as viable in arbitration as in judicial litigation and thus as “the prospective litigant may provide in advance for a mutually agreeable procedure whereby he would seek his antitrust recovery as well as settle other controversies,” 473 US at 636. “The importance of the private damages remedy, however, does not compel the conclusion that it may not be sought outside an American court.” 473 US at 635.
Likely the part of Mitsubishi that has engendered the most discussion from scholars and counsel has been the important reference in that opinion to the role of the national courts. The Court stated: [h]aving permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed. The [New York] Convention reserves to each signatory country the right to refuse enforcement of an award where the “recognition or enforcement of the award would be contrary to the public policy of that country.” 473 US at 638. This is the language that spawned the so-called “second look” doctrine although the Supreme Court does not use that phrase. As well, the ECJ affirmed in Eco Swiss that the national courts in the EU should grant annulment of any award where “its domestic rules of procedure require it … for failure to observe national rules of public policy.
Having the benefit of thirty three years of hindsight, if the look means a stare vs a glance, we should probably quietly turn the lights out on the “second look” doctrine as there really is no proper “second look,” the Supreme Court did not mean for there to be a proper ”second look,” and we do nothing to further the laudable goals of competition policy or arbitration policy to keep that doctrine breathing. The doctrine could have very well originated at a time in the 80’s when there was perhaps less confidence in the process of international and even domestic arbitration (recall it had not been “tested”), and you can see this in the strong Mitsubishi dissent of Justice Stevens, an eminent jurist to be sure, joined by Justices Brennan and Marshall. 473 US at 665. But I do not think the majority was reticent to the “experiment” when stating that “national courts will need to “shake off the old judicial hostility to arbitration.” 473 US at 638.
There is no issue that in most countries competition law forms an integral part of a state’s public policy, its ordre publique that defines its core values to the rule of law. As adherence to a state’s public policy is at the heart of the New York Convention dealing with enforcement of arbitral awards, the national court at the award-enforcement stage has the opportunity to “look” at the award and determine if it comports with the state’s public policy. NY Convention V (2) (b). Furthermore, in meeting the expectations of the parties, the Tribunal should do its best to issue an enforceable award, which goal is embodied in some institutional rules, such as Article 41 of the ICC Rules. Thus, the Tribunal must consider the different competition regimes which touch the controversy; ie in jurisdictions where the award will be enforced and its public policy.6)
It comes down to what kind of “look” does the enforcement court engage? I don’t have the space allotment to discuss this in detail, only to say Professor Radicati has well laid out the “maximalist” and “minimalist” approaches of scholars and the national courts in the article cited in footnote 7.7)Moreover, Justice Blackmun for the Court was quite clear in stating that this “look” is “minimal”: “[w]hile the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them.” 473 US at 638.
Following that, one of the most respected appellate judges Frank Easterbrook on the US Court of Appeals for the 7th Circuit noted in Baxter Int’l v Abbott Laboratories, 315 F 3d 829 (7th Cir.2003), the very minimal review of the national courts if the arbitration process is going to work or be given a chance to work, as implied strongly by Mitsubishi. “Legal errors are not among the grounds that the Convention gives for refusing to enforce international awards” Judge Easterbrook noted and “Mitsubishi did not contemplate that, once arbitration was over, the federal courts would throw the result in the waste basket and litigate the antitrust issues anew. That would just be another way of saying that antitrust matters are not arbitrable.” 315 F 3d at 832. And to the same effect are cases across the Atlantic, perhaps the most notable being Thales v Euromissile8) in the Paris Court of Appeal in 2004, where the court refused to consider a competition law infringement allegedly that “creve les yeux,” but was not even examined for better or for worse by the “yeux” of the arbitrators. The court followed Eco Swiss and French procedural rules and refused to set aside the award.9)
References to Part 1
|1.||↑||Case No C-126/97,  E.C.R. I-3055 (E.C.J.)|
|2.||↑||ABA Antitrust Law Developments (8th ed. 2017), p. 813|
|3.||↑||Horizontal price fixing cases have since been held to be arbitrable disputes. See, e.g. JLM v Stolt-Nielsen, 387 F. 3d 163 (2d Cir 2004).|
|4.||↑||Of course government enforcement (eg criminal enforcement and merger enforcement) would not be arbitrable. On the European front, there has been discussion of arbitration of behavioral remedies in merger cases, but this has not really taken hold. See L.G. Radicati, Arbitration in E.C. Merger Control: Old Wine in a New Bottle, European Journal of Business Law 2007. We have seen recently in the US the use of arbitration proposed by parties seeking government approval in a merger case (ATT and Time Warner). US v ATT et al. (at pages 41, 149 fn. 51).|
|5.||↑||Section 4 of the Clayton Act, 15 USC sec 15.|
|6.||↑||Professor Radicati has written well on “which competition law.” Arbitration and Competition Law: The Position of the Courts and Arbitrators, 27 LCIA Arbitration International 1 at page 19 (2011); Professor Mayer stated in 1986 that even though arbitrators “are neither guardians of the public order nor invested by the State with the mission of applying its mandatory rules,” they should “pay heed” to the “future” of the award and thus apply all mandatory rules of law to develop an award that can be enforced. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2 J. Int. Arb. 274, 284-86 (Kluwer 1986).|
|7.||↑||The reader is also referred to the thorough compendium on this general subject put together by G Blanke and P Landolt (eds), EU and US Antitrust Arbitration: A Handbook for Practitioners, Kluwer, 2010. The chapters by A Mourre, L Radicati, as well as this writer, all very much state the law has adopted and should adopt the minimalist standard of review of awards. See Chapters 1, 22, and 39.|
|8.||↑||Cour d’appel de Paris, 1re Chambre, section C, 18 Novembre 2004 (n° 2002/19606, SA Thalès Air Défense c/ GIE Euromissile et EADS|
|9.||↑||See also Gary Born, International Commercial Arbitration (2d ed.2014, Kluwer) at p.3322 where he notes that “[p]ublic policy has generally been invoked only in cases of clear violations of fundamental, mandatory legal rules, not in cases of judicial disagreement with a tribunal’s substantive decisions or procedural rulings.”|
Now that we know the “second look” is not so much a look but a glance, what does this mean for arbitrators in these cases, frequently highly complex disputes infused with economics? In brief, it places a very heavy burden to get it right. The mandatory public policy of competition law which would by contract be delegated to an arbitration tribunal involves the very fabric of “democratic capitalism” and is of “national interest” to at least the US economy, as Mitsubishi notes, 473 US at 635-36 and there is no reason to think the disputes are less important in most other countries. The importance is heavy, the policy is real, even such that arbitrators, in the view of some scholars, have the duty to raise and apply the relevant competition regimes on their own motion.1) Thus, I will touch on a few issues I have experienced, noting that Mitsubishi has had a long and wide effect, and its fundamental policy of the nature of arbitration may help practitioners evolve the issues the cases present to lead to “efficient disposition” as predicted by Mitsubishi; the focus will only be on discovery, experts, and summary disposition in complex competition disputes, but you could obviously expand this list.
The Supreme Court noted in Mitsubishi, as referenced above, that “vertical restraints which most frequently give birth to antitrust claims covered by an arbitration agreement will not often occasion the monstrous proceedings that have given antitrust litigation an image of intractability. In any event, adaptability and access to expertise are hallmarks of arbitration.” 473 US at 633. And of course, we have seen horizontal restraint allegations in arbitration2) and many IP cases will involve licenses on a horizontal level and contain arbitration clauses, such as Abbott Laboratories, discussed above. In any case, these are not disputes like nationwide grand jury price fixing or market allocation investigations or dawn raids seen in the EU that involve truckloads of hard drives, paper, etc. Nor are they merger investigations, involving Second Requests. These “monstrous proceedings” are not seen in arbitration. Thus in my experience in arbitrations, in both vertical and horizontal issues, I have latched on the “adaptability” point of Justice Blackmun and have so far been able to successfully conclude disputes with tailored discovery; my guidepost has been the IBA Rules referenced in Part 1. For the sake of expedition and to keep the expense reasonable, depositions are not generally allowed, unless that witness is critical to the case and/or cannot appear live. And while tailored document exchange is the preferred method of information exchange, I would very much agree with two leading practitioners “because arbitral procedures are flexible, it is always possible for a tribunal, if persuaded that it is necessary, to make searching orders for the production of documentary evidence, short of “fishing” exercises.”3) All this said, this is arbitration, not court litigation, and broad discovery is not necessarily a given.4)
In any case, discovery of some dimension is usual, especially in a complex arbitration, like a competition based arbitration. Many institutions have adopted rules to deal with the complexities of competition cases, an example being the AAA’s Procedures for Large, Complex Commercial Disputes as well as the soft law guidance of the IBA Rules. Furthermore, the privilege issues that can come up in international disputes can be daunting and I have previously written on my position and the importance of keeping a level playing field between the different parties who may face different privilege national laws and protocols.
Justice Blackmun also notes the importance of “access to expertise” as being a “hallmark” of arbitration; the Court refers both to arbitrator expertise as well as expert opinion testimony, “arbitral rules typically provide for the participation of experts either employed by the parties or appointed by the tribunal.” 473 US at 633. Antitrust and competition disputes are expert driven as the jurisprudence in major antitrust regimes throughout the world has trended to be grounded in solid economics.5) The IBA Rules again have detailed and well thought out procedures in Articles 5 and 6 of the Rules.
I have found after years of dealing with competition/economic experts in court, in the agencies in the US and the EC, and in arbitration, that the very “adaptability” which the Supreme Court considers also to be the “hallmark” of arbitration, allows for a better avenue to truth than the courts provide and, therefore, we hope, justice. Messrs. Veeder and Stanley refer to this as “procedural and evidential flexibility.”6) The time honored method in many juridical systems of cross examination alone by advocates just may not be the best way of testing economic opinions regarding a definition of a relevant market, has there been more competition over time, has new entry occurred or can it occur in spite of not having occurred, and has there been a prices increase and why not, the list goes on. As noted by the above esteemed barristers, “[i]t is certainly not self-evident that anything resembling full-scale ‘cross-examination’ of the experts by counsel is likely to be productive.”7)
While I am not certain of the benefits of tribunal-appointed experts, as contemplated by Article 6 of the IBA Rules, I completely agree that simple or rigorous cross examination of party appointed economic experts alone is wasting the very tools of flexibility that arbitration offers. Therefore I have used and have found very beneficial to the tribunals of which I have been a part, a form of witness conferencing with experts as the most robust method to arrive a comfortable resolution, and with any luck, wisdom and truth. I have used this with experts after their testimony and cross examination to pin point them down on point A, then asking the opposing expert her views on that point, then moving to Point B. I have also had simultaneous back and forths as well, just that the tribunal needs tightly to control this process, some with counsel participating, some after the witness’ testimony, with the tribunal only questioning. I have used this most recently with opposing experts on foreign competition legal regimes. Of course, “hot tubbing,” an in vogue procedure, also puts to use the flexibility of arbitration and this is contemplated by the IBA Rules as well in Article 5.4. These procedures and other creative ways at approaching economic expert testimony, of course, should be established in advance at an appropriate case management conference.
In the US, dispositive motions (summary judgment motion practice) play a critical part in the development of the antitrust law, mainly as a result of several Supreme Court antitrust decisions, including one a year after Mitsubishi, Matsushita Elec v Zenith Radio, 475 US 574. (1986) (a plaintiff at the dispositive motion stage “must show that the inference of illegal conspiracy is plausible if there is a competing explanation) and, more recently, Bell v Twombley, 550 US 544 (2007), (a plaintiff at the pleading stage must allege facts showing allegations of illegal conspiracy are plausible not merely conceivable). And today in arbitration practice, dispositive motion practice has become an important topic in light of the concern for expedition and expense and many institutional rules have begun to adopt these procedures.8)
In Mitsubishi, Justice Blackmun noted that “[b]y agreeing to arbitrate a statutory claim, a party … trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.” 473 US at 628. There is no sound reason why the new interest in this summary process in arbitration and the judicial trend in the Supreme Court in competition cases cannot meld together such that more institutions can come on board, especially in these complex disputes. For one, Justice Souter noted in Twombley, that a policy behind the decision is to avoid the potentially enormous discovery expense absent a solid plausible claim for violation. 550 US at 558-60. Moreover, dispositive motion practice plays a much more benign or intrusive role in arbitration as the same fact finder, the tribunal, will resolve the case—with or without a plenary evidentiary hearing; in the US at least, a summary judgment takes the decision process away from the jury.
We see a convergence of policies when considering dispositive motions in complex arbitrations, such as competition cases. At one time arbitration, antitrust, dispositive motions, needed discovery, complex disputes were words not used in the same paragraph. These cases have traditionally been heavy document oriented and involved massive discovery, and for many years dispositive motions were discouraged because “the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot.” Poller v CBS, 368 US 464, 473 (1962). Then in 80s, the courts became chary of simply green lighting expensive antitrust claims with no plausible basis and at the same time, with the groundswell of arbitration, Mitsubishi asked “why not” bring simplicity, informality, and expedition to these same disputes? As the penumbra of Mitsubishi has developed, scholars and institutions have advanced the idea of achieving the policy of Mitsubishi through devices as dispositive motions. To be sure, the case must be a correct one for a dispositive motion, and the tribunal must keep in mind Article V (I) (B) of the New York Convention ensuring procedural fairness (a right to be heard) in the arbitration.9) A dispositive motion, when used properly, can potentially reduce the time and expense in a case, which is consistent with the goals of arbitration.10)
Mitsubishi was a landmark decision in the area of arbitration, and especially complex arbitration. One can hope that our judges, arbitral institutions, scholars, and policy makers continue to push the envelope and walk through the door that it has opened.
References to Part 2
|1.||↑||See Radicati, op. cit.fn.7, at p.21|
|2.||↑||E.g., Stolt-Nielsen, op cit. fn.3.|
|3.||↑||Veeder and Stanley, in EU and US Antitrust Arbitration: A handbook for Practitioners, op cit. fn. 8, ch. 3 at p.105.|
|4.||↑||Judge Easterbrook noted in a recent domestic US case on the Seventh Circuit “nothing in the Federal Arbitration Act requires an arbitrator to allow any discovery. Avoiding the expense of discovery under the Federal Rules of Civil Procedure and their state-law equivalents is among the principal reasons why people agree to arbitrate. That Hyatt’s attorneys’ fees in the arbitration exceeded $1 million shows that plenty of discovery occurred; an argument that the arbitrator had to allow more rings hollow.” Hyatt Franchising v Shen Zhen|
|5.||↑||In the United States, see US v ATT, et al, op cit. fn. 4; Ohio v American Express, 585 US ____; 138 S. Ct. 2274 (2018).|
|6.||↑||See Veeder and Stanley, op cit. fn. 8, ch.3 at p. 106.|
|8.||↑||See, e.g., Article 39 of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce; Rule 29 of the SIAC (Singapore) Rules; Rule 33 of the AAA Commercial Rules.|
|9.||↑||Gary Born’s treatise is particularly helpful on this score. Op cit. fn. 10 at pp. 3492-541.|
|10.||↑||This writer first wrote an article on dispositive motion in competition arbitrations about a decade ago (pre-Twombley), 24 J. Int. Arb. 2 (Kluwer 2007), Certain Procedural Issues in Arbitrating Competition Cases, (dispositive motion discussion at pp. 201-209), (with Kurkela, Liebscher, and Sommer).|